Renminbi, Yen, and AUD Surge Amid China Stimulus, Political Shifts

Renminbi

The Renminbi strengthened to 7.01 against the dollar, its strongest level since May 2023.

The currency was buoyed by positive investor sentiment following announcements from the People’s Bank of China and the ruling Politburo that they will enact multiple additional stimulus measures to counter the economic slowdown in China, the world's second largest economy.

Reports indicate that China is considering injecting up to CNY 1 trillion into its largest state owned banks to enhance their capacity to support economic activity, marking the first such capital injection since the global financial crisis in 2008.

At the same time, policy interest rates were cut further and rules restricting the use of leverage by non-retail investors to fund share purchases have been relaxed, giving a positive impetus to the stock market.

The positive currency market reaction followed a rare briefing earlier in the week, where the central bank unveiled its comprehensive package of stimulus measures.

What is not being commented on as much is that these moves amount to a tacit admission of systemic strain in the financial and commercial property sectors.

Japanese Yen

The Japanese Yen strengthened to 142.1 against the dollar last week. The Yen’s surge came after the ruling Liberal Democratic Party chose political veteran Shigeru Ishiba as its leader, by a narrow margin.

Some view Ishiba’s appointment as an end to the monetary policy experiments of the past 2 decades, paving the way for more Bank of Japan tightening and a stronger Yen.

On Friday, however, he stressed the need to boost consumption in order for the country to emerge from deflation. His comments come as he looks to build popularity ahead of a national vote.

Domestically, data showed Tokyo CPI, a proxy for the national reading, had slowed to 2.2% in September from 2.6% in August. Any sign prices are softening will keep policymakers on hold and the Yen rangebound.

Australian Dollar

The Australian Dollar strengthened by a further 1.4% last week against the US Dollar to trade at 0.69 on Friday.

AUD is now at its highest levels since February 2023 as part of a broad selloff in the US dollar following softer US inflation data and China’s stimulus measures.

The Australian dollar is particularly sensitive to the Chinese economy and the market was enthusiastic last week about a series of monetary and fiscal announcements to alter China’s trajectory.

Domestically, data showed a larger than expected inflation drop in Australia last month.

Despite this, The Reserve Bank of Australia (RBA) maintained its cash rate at 4.35% during its September meeting, keeping borrowing costs unchanged for the seventh consecutive meeting.